Apple shares drop 6.4% on worst trading day in four years, analysts speculate why

Apple's shares dropped by 6.43 per cent on Wednesday, leading the company to lose $34.9 billion in market cap at $583 on its worst trading day in four years. It's a drop of nearly 24 per cent from the company's all-time high. Analysts and experts have been speculating about what could be the cause of the fall, with theories including misinterpreted reports, predictions of market share decrease, China Mobile's deal with Nokia and the looming fiscal cliff.

Apple's shares dropped by 6.43 per cent on Wednesday, leading the company to lose $34.9 billion in market cap at $583 per share on its worst trading day in four years. It's a drop of nearly 24 per cent from the company's all-time high. Analysts and experts have been speculating about what could be the cause of the fall, with theories including misinterpreted reports, predictions of market share decrease, China Mobile's deal with Nokia and the looming fiscal cliff.

Some reports blame recent predictions from technology research firm IDC, who believes that Apple could lose tablet market share to Android and Windows in the run up to 2016.

Piper Jaffray analyst Gene Munster also has his theories on why Apple's stock has seen such a dramatic decline.

One of his theories is that investors have misinterpreted an article by Chinese technology site DigiTimes implying that demand for the iPhone will be low in early 2013.

"A DigiTimes article from today suggests that iPhone 5 is selling well based on comments from wireless chipset providers and seems to suggest upside to the Street's 43-45 million estimate for December," Munster wrote in a note to clients yesterday. "In the same article, DigiTimes is suggesting a 20% q/q decline in Apple's demand for parts and components in March. We believe this 20% decline is to be expected coming off of a launch quarter and do not believe it is an indication of how units might trend in March."

A second theory from Munster suggests that earlier speculation over the possibility of China Mobile choosing to carry Nokia's Lumia rather than the iPhone has scared investors, who worry that the iPhones presence in China will be negatively impacted as a result.

"We believe some investors have speculated that China Mobile will carry the Lumia instead of the iPhone," he wrote. "We do not believe this is true and note that China Mobile already carries multiple smartphones from multiple vendors. We continue to expect China Mobile to add the iPhone in the back half of 2013."

"Apple's simple 50 day moving average is nearing its 200 day moving average, which is a negative technical sign," Munster wrote, referring to a technical breakdown in shares that he thinks may not have taken full effect on Apple's stock yet. "Based on our conversation with Piper Jaffray Technical Analyst Craig Johnson, we believe that for this technical indication, most of the damage has been done to AAPL, but there could be a worst case additional 10% move to the downside which could be the next meaningful area of support."

The fourth of Munster's theories relates to margin requirements being raised. "We also note that CNBC is reporting that COR Clearing is raiding margin requirements on Apple from 30% to 60%. While we don’t' know what percentage of AAPL shares are on bought on margin, we do not believe the requirement change has anything to do with the fundamental health of APPL," he wrote.

Despite the drop, Munster continues to put a price target of $900 per share.

UBS analyst Steve Milunovich also highlights the Nokia and China Mobile deal as a potential cause of the stock decline, but adds Hurricane Sandy into his theory, suggesting that smartphone sales in quarter four could take a hit as a result of the superstorm.

"We do suspect US smartphone sales were impacted by Hurricane Sandy to some degree, perhaps artificially deflating AT&T's comps," he wrote. "Both AT&T and Verizon remarked they had better-than-anticipated year-over-year growth over the holiday weekend, perhaps indicating smartphone demand was pushed out by a couple of weeks."

Meanwhile, Tech Crunch blames Apple's share price ups and downs, the uncertainty caused by Apple's changes in product release cycle, the complexity of predicting how much Apple is worth, and ambiguity about whether Apple sales are doing well or not in comparison to competitors.

Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, said that Apple needs to unveil an innovative new product for "another home run," in order to boost shares back up to the $700 mark.

"They need another new product that hits it out of the park," Battle said. "Without that, they could get a gradual grind-down in confidence."

Apple has this week announced that it will be launching its iPhone 5 in 50 additional countries this month, including China and South Korea, which will bring the total country count to 100 for the latest smartphone. Some analysts are baffled about why Apple's stock has taken a turn for the worse despite this news.

"Apple stock is significantly more volatile than its earnings and innovation stream," said Daniel Ernst, analyst with Hudson Square Research. "And yet the wind blows slightly from the south instead of the east one morning and the stock is down 6 per cent."

"It makes no sense," Ernst continued. "There are lines around the block for their products all around the world. No other company has that."

Reuters reports that Investors may have hoped for a special dividend from Apple this year, as many other companies have announced due to expectations of higher tax rates in 2013. But as we approach the end of the year, time is running out, so investors may be opting to sell their shares.

"If you were expecting a special dividend by year end, that's less likely to happen because it's December 5," BGC Partners analyst Colin Gillis said yesterday.

"Depending on what happens with the [US fiscal negotiations], rates could rise next year or they could stay the same," Brian Battle added. "They will not be lower, so if you're an investor who has seen gains in Apple, it is better to take those gains this year rather than next."